E.ON's pragmatic acceptance of political reality in Spain could stand the German company, and European power competition, in good stead.
E.ON is set to become the fourth biggest player in the Spanish and the Italian market, and the third in France.
As a result of the deal between Enel/Acciona and E.ON, which sees E.ON withdrawing from the takeover battle for Spain's Endesa, E.ON finds itself repositioned as a new entrant competitor in three markets - Spain, France and Italy - with every incentive to act aggressively and so grow second-rank positions into first-rank positions.
Whether it maximizes this opportunity remains to be seen, but incumbents in those markets are likely to feel less comfortable today than if E.ON had gained Endesa outright.
While opportunities beckon for E.ON, it is harder to see what Endesa and Enel gain. There are few synergies between Spain and Italy now that Endesa's hard-won international business is to be stripped away.
Enel is paying a premium to land its prize, and analysts view shared management with Acciona as less than optimal.
Based on preliminary figures, Enel has agreed to sell Endesa assets to E.ON at around 8x EV/EBITDA 2006, while paying 9.5x EV/EBITDA 2006 for Endesa stock, investment bank UBS said on April 4.
While the dilution of value exists, however, "we think the positives of the international expansion could outweigh the valuation negatives" for Enel, the bank said.
At an April 3 investor conference call, Enel said Endesa would remain listed with around a 20% free float. E.ON is to acquire about 10 GW of generating capacity in Spain, Italy and France, and assets in Turkey and Poland, with aggregate EBITDA of "less than Euro1.3 billion".
Those assets would be sold for around Euro10 billion - "the exact sum will be determined on the basis of fair values using generally accepted methods," E.ON said.
In the case of 75% acceptance of the Enel/Acciona offer, the Italian utility would retain a single A credit rating. Enel said the deal would boost earnings per share by over 20% in year one, ahead of synergies and asset write-ups. It aimed to file the prospectus before April 20, with the whole bid completed before the end of July, 2007.
E.ON meanwhile is set to become the fourth biggest player in the Spanish and the Italian market, and the third in France.
In Spain, Acciona and Enel have agreed to sell to E.ON Enel Viesgo, plus a further 1,475 MW of thermal power capacity (2.4% of total installed capacity in Spain), plus a contract to provide to E.ON access to 450-MW of nuclear capacity for 10 years.
Viesgo has an installed capacity of some 2,400 MW. "This generation capacity will have increased by about 50% by 2010, as a result of ongoing construction projects," E.ON said. In total, by 2010 E.ON's Spanish power plant capacity will have a balanced energy mix of around 6,400 MW.
The transfer of these assets in Spain and elsewhere is subject to Acciona and Enel achieving control of Endesa.
In Italy, E.ON is to acquire Endesa Italia, with about 5,000 MW in capacity.
"Benefiting from noteworthy synergy potential, these capacities complement E.ON's existing Italian wholesale electricity and gas trading and gas sales operations," the company said.
In France, E.ON is set to gain Endesa France/Snet, with some 2,500 MW, plus significant gas-fired power plant development plans. Most advanced are plans for two 400-MW CCGT units at Emile Huchet, but the company has an overall goal of 2-GW of new gas plant plus 200-MW of renewables in France. Finally, E.ON is also to gain unspecified assets in Poland and Turkey.
E.ON chief executive Wulf Bernotat said: "Acciona's and Enel's involvement in Endesa has made our original goal of acquiring a majority stake in Endesa impossible.
Obtaining a minority interest in Endesa would have led to a stalemate between the shareholders and triggered unpredictable lawsuits.
The agreement we have reached with Enel and Acciona will rapidly establish clarity for everyone involved. At the same time, in one step, E.ON will establish attractive market positions in Spain, Italy and France, which we look forward to further developing."
Marc Watton, senior utilities analyst with French bank BNP Paribas, told Platts: "I think that this is not such a bad outcome for E.ON in the end and is preferable to months of ongoing uncertainty.
E.ON gains decent positions in Spain, Italy and France and probably does not have to pay the premium to buy Endesa which Enel and Acciona are going to have to pay. Of course, this is somewhat of a climbdown but is a sensible way out and allows E.ON to get on with business."
Speaking the day after E.ON withdrew its Euro41 billion offer for Endesa, Bernotat said the German utility continued to be "very strong financially" and would "play an active role in the consolidation of the European energy sector."
Speculation then turned to future targets. Neil Beddall at Barclays Capital thought the obvious targets were Scottish and Southern Energy and Centrica, "as these would deliver E.ON's goal of being the largest utility in the UK."
There is even some suggestion that E.ON could run the slide rule over Iberdrola, rolling a Spanish and UK (Scottish Power) takeover into one.
Acciona, Enel submit Eur43.7 billion bid for Spain's Endesa to market regulator
Acciona of Spain and Italy's Enel on April 11 formally submitted their Endesa takeover proposal with Spanish stock market regulator CNMV for authorization.
The all-cash offer is for all 1.059 billion shares of the Spanish generator at a price of Eur41.30 ($55.45) per unit, or Eur43.7 billion in total. A detailed prospectus is to be issued once the CNMV approves the offer.
Enel and Acciona added that the bid price would be reduced to reflect any dividend payments or other distributions made prior to the close of the transaction.
The two companies, which already own around 46% of Endesa, have also called on Endesa management to convene a shareholders' meeting before the end of the acceptance period so that certain corporate statures, such as the 10% voting right cap, can be eliminated.
The takeover is still subject to the approval of Spain's National Energy Commission and the Spanish Energy General-Secretariat.
Created: May 9, 2006
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